Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 16, Problem 16.5P
a)
To determine
To find:
Number of workers to be hired and and wage rate.
b)
To determine
To know:
Number of workers and
c)
To determine
To plot:
Graphical representation of results.
d)
To determine
To find:
Comparison of minimum wage in monopsony and
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Students have asked these similar questions
Suppose that the Ebay warehouse behaves as a monopsonist in the local labor market.
Assume that its labor supply curve is w(LS) = 4LS and its labor demand curve is w(LD ) = 42.8−2LD.
To maximize its profits:
a. how many units of labor will Ebay hire and
b. what wage will Ebay pay?
Now suppose that the local labor union goes on strike and Ebay is eventually forced to increase the pay of its workers to a competitive wage. What wage would Ebay then have to pay?
c. Find competitive wage
The correct answers are:
a. 4.28
b. 17.12
c. 28.52
Assume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is sold
in a competitive market at the price p = 1 to maximise profits. The production function of the
monopsonist is given by Q (L) = 100L - 1L². The inverse supply curve for labor is w(L) =
2
20 + 2 L.
a. Derive and describe the monopsony's inverse demand curve for labor.
b. Describe algebraically and graphically how many units of labor the monopsony hires and
at what wage. Describe the nature of monopsony power and provide economic intuition.
B. Consider a firm who sells output at p=10 and has a short run production function Q(L)=20L-L2. Its wage rate function is w=40+2.5L.
Suppose the firm is a monopsonist, how much labor will it hire to maximize profits?
Knowledge Booster
Similar questions
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- A monopsonist’s products are sold in a perfect competitive market at a price of $6. If the firm’s TFC=5L+2L2 and in the short run, its marginal product equals 10. How many units of labor will she employ and what wage will she pay? Assume now the monopsonist firm’s product is in a monopoly market with demand function P=80-2Q. How many units of labor will she employ and what wage will she payarrow_forwardThe inverse labour demand curve of a monopsonist employer is W = 40,500 – 105L, where W is the annual salary and L is the number of workers hired. The labor supply is given by W = 10,600 + 104L. (a) The marginal expenditure equation is ME= . Do not include a comma in your answer. Please use capital letters (e.g. L not l) (b) To the nearest integer, the monopsonist would hire workers and, given that number of workers, the salary they would pay is, rounded to 2 decimal places (e.g. 4.12) . Do not include a comma in your answer.arrow_forwardAssume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is sold in a competitive market at the price p = 1 to maximise profits. The production function of the monopsonist is given by Q (L) = 100L — L². The inverse supply curve for labor is w(L) = 2 20 + 2 L. c. Describe algebraically and graphically what the welfare effects would be of the introduction of a minimum wage set at the competitive level. Would it improve welfare if the minimum wage were set above the competitive wage? Support your answer with a graph and economic intuition.arrow_forward
- Consider a monopsonist that hires 4.28 units of labor at a wage of 19.26. If the marginal value placed on the last worker hired is 41.22 a.) what is the elasticity of labor supply for this monopsonist?arrow_forwardPlease please solve all partsarrow_forwardThe following table shows the relationship between workers and output for a factory in the short run, with capital held constant. This firm is a monopoly in the output market, and price and marginal revenue for the firm are also given in the table. Find the marginal revenue product of labor (MRPL). Marginal Physical Product (MPPL) Labor Input 0 1 2 3 4 5 If the wage rate is $408, this firm will hire 0 20 14 12 9 3 workers. In general, a monopolist will employ Price of Output (P) 40 39 38 37 36 35 Marginal Revenue (MR) 38 36 34 32 30 workers than a similar competitive firm. MRPL 760 504 408 288 90arrow_forward
- Joe's Flat Pretzels is a dominant employer of manufacturing labor in the town of Pretzelville, PA. Their demand for labor can be represented by W=24-Q where Q is measured in hundreds of hours. The supply curve of labor is W=4+0.25Q. Because Joe's Flat Pretzel has market power in the labor market, their Marginal Cost of Labor is MC=4+.5Q. How many units of labor will Joe's hire? At what wage? Provide a graph illustrating this situation.arrow_forwardBig Cheese Inc. is the only employer in a small town in rural Louisiana and thus acts as a monopsony-that is, a buyer's monopoly. Its main product is cheddar cheese, which it sells in a perfectly competitive market. The following graph shows the marginal revenue product of labor (MRP) curve it faces, its labor supply curve, and its marginal factor cost (MFC) curve. Use the black point (plus symbol) to indicate the quantity of labor Big Cheese Inc. will hire and the wage rate it will pay for its workers. WAGE RATE (Dollars per hour) 60 57 54 51 48 45 42 36 33 30 27 12 9 H MRP MFC 3 0 0 1 2 3 4 5 6 7 8 9 10 QUANTITY OF LABOR (Workers per hour) Monopsonistic Outcome Labor Supply Big Cheese Inc. will hire workers at a wage rate of $ per hour. (?) Which of the following explains why the MFC curve lies above the labor supply curve? ◇ Each worker must be paid benefits in addition to the wage rate. ○ The marginal cost of hiring an additional worker includes not only that worker's wage but also…arrow_forwardIf the demand for a good is Q = 1,400 - 100p, then marginal revenue function is given by 14-Q/50 1400-200 1400- 100 -1/100 14Q - Q²/100 The more elastic the labour supply is, the smaller the wage paid by a monopsonist. True Falsearrow_forward
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